One of the biggest issues we hear from real estate teams and brokerages is this:
“We have no idea what our conversion rate is with marketing…”
If this is you, don’t worry. I’ll walk you through the calculations. Sometimes it’s hard to sit down and understand the numbers — but it’s important you do learn them. It comes in handy when you want to hire a new agent or expand into a new market.
Knowing how many leads are needed to generate X clients gives you a clear picture of the costs. So, when your brain asks “Is it worth it?” or “Should I spend my budget on advertising?” you don’t turn into a deer facing headlights. Instead, you get confidence in the business decisions you’re making.
Doing the Math
Here’s what you’ll need:
- Marketing Expenses (i.e. advertising costs, etc.)
- # of leads generated
- # of leads who became a client-prospect
I’m going to base the numbers by month, since most real estate teams operate with monthly advertising budgets. First, take the (# of leads generated) and divide by the (# of client-prospects). So, if you generated 1000 leads in January and 50 of them became clients, here’s what the equation would look like:
50 ÷ 1000 = 0.05 (or 5%)
(# of clients) ÷ (# of leads generated)
From the above numbers, you have a 5% conversion rate on leads. So, how can you use this information? Let’s say you want to recruit a mega, all-star agent in the adjacent city. To recruit them, you offer to provide leads.
If the agent closed $20 million in sales last year, you can approach them, promising a new achievement of $30 million … if they join you. *This is assuming you know the average price point of homes in your area.*
If you know 1 client equals $300k, then you can figure out how many clients they need to succeed + what it’ll cost to generate those clients (because you know your conversion rate).
Here’s the breakdown:
- To reach $30 million in sales, you need to close 100 deals (i.e. clients) – based on the average home price. (300MM ÷ 300K = 100)
- If you have a 5% conversion rate — to create 100 clients, you’ll need to generate 2000 leads.
- To create 2000 leads, you know it’ll cost $7000 in advertising (based on hypothetical expenses). *You should know how much a lead costs in your market. If you don’t, use the same math. (Money spent) ÷ (# of leads generated).*
Improving Conversion Rates
Adjusting your conversion rate by just 1% can have a profound impact on your business, costs, and overall profits. Improving communication and lead follow-up is the usual step real estate agents take. But there are other methods to consider.
One idea is measure the conversion rate on different channels — such as Google AdWords versus Facebook Advertising. Each marketing channel will have distinctive (and varying) conversion rates, forcing you to make a decision: Where should you invest your money?
If you noticed Google AdWords has better conversion rates, allocate more budget to it. If you need more leads than what Google AdWords can provide, consider leveraging Facebook Advertising (or any other medium).
Another idea is try different offerings, or ads. Yes, the best ads do center on “listings,” but how long does it take for that lead to become an actual client? What does the timeline look like if you change the ad to show off “real estate agent” instead?
Any variable can be tested and measured. And the more you know, the better you can make smart decisions.